Last plea on school loans: proving a hopeless future

Source: Ron Lieber - The N.Y. Times (Paid Registration)

Before the mid-1970s, debtors were able to get rid of student loans in bankruptcy court just as they could credit card debt or auto loans. But after scattered reports of new doctors and lawyers filing for bankruptcy and wiping away their student debt, resentful members of Congress changed the law in 1976. In an effort to protect the taxpayer money that is on the line every time a student or parent signs for a new federal loan, Congress toughened the law again in 1990 and again in 1998. In 2005, for-profit companies that lend money to students persuaded Congress to extend the same rules to their private loans. But with each change, lawmakers never defined what debtors had to do to prove that their financial hardship was “undue.” Instead, federal bankruptcy judges have spent years struggling to do it themselves.

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